Another Fiscal Cliff – The case of Iceland

In an op-ed today in the WSJ Alan Blinder takes on the “Fiscal Cliff risk”:

Dear Congress,

Please don’t drive our economy off the fiscal cliff.

First of all, I really hate recessions—and you should, too. If you take between 3% and 4% of total spending out of an economy, a recession is very likely to follow. People like me won’t lose their jobs, or even take a pay cut. Neither will you—at least not until the next election. But millions of Americans will, and that’s the main point. Millions of jobs will be destroyed, incomes and wealth will fall, and businesses will fail in droves—all because a bunch of politicians couldn’t agree.

This reminded me that in recent posts Lars has been dismissive of the impacts of “fiscal cliffs” – here, here . In his latest post he says:

The crisis had serious economic and social consequences and particularly 2009 and 2010 was very hard years for the Icelandic people. However, I am happy that the Icelandic economy has been in recovery for some time now, the financial sector is back on its feet and the government has moved far away from default thanks to serious fiscal consolidation (a triple “fiscal cliff” to be exact).

I thought it would be interesting to watch the Icelandic dynamics unfold in chart form. The charts below picture the way into the crisis and the way out, cum fiscal cliff.

Fiscal Cliff_1

 

Fiscal Cliff_2

 

Fiscal Cliff_3

Fiscal Cliff_4

 

Fiscal Cliff_5

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3 thoughts on “Another Fiscal Cliff – The case of Iceland

  1. Yep, Alan Blinder “worries” about lower income employment…when it’s politically convenient! Lar’s recent posts have made the holiday season a bit brighter for me, especially as the Fed is now reacting to the boneheads in Congress. Oh, and a toast to your last chart!

  2. Interesting how an ex-Fed guy worries about what Congress is doing and not about his inflation obsessed peers are doing for income and employment. We’re what, about $2.2T below trend for NGDP and getting farther behind with every passing month? Too bad his voice was conspicuously absent while they were causing the real damage.

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